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Nacha's Meaningful Modernization Rule 3 - Other Authorization Issues Rule

9/10/2021 - By Janice Weisz, AAP

Rule Overview

Effective September 17, 2021, in conjunction with the Standing Authorizations Rule and Oral Authorizations Rule, the Other Authorization Issues Rule includes other modifications and reorganizations of the general authorization rules for purposes of Clarity, Flexibility and Consistency.

For Clarity, the Other Authorization Issues Rule will:

  • Reorganize the general authorization rules to better incorporate Standing Authorizations, Oral Authorizations, and other changes
  • Define “Recurring Entry” to complement the existing definition of a single entry and the new definition of a subsequent entry, and align with terms in Regulation E

For Flexibility, the Other Authorization Issues Rule will:

  • Explicitly state that authorization of an ACH payment can be by any method allowed by law or regulation
  • Only consumer debit authorizations require writing that is signed or similarly authenticated

For Consistency, the Other Authorization Issues Rule will:

  • Apply the standards of “readily identifiable” and “clear and readily understandable terms” to all authorizations
  • Apply the Minimum Standards that are currently stated only in the rules for Telephone-Initiated Entries (TEL) for all consumer debit authorizations

Minimum Standards

An authorization for a debit entry to the consumer account of the receiver must, at a minimum, include:

  • Language regarding whether the authorization obtained from the receiver is for a single entry, multiple entries or recurring entries
  • Amount or a reference to the method of determining the amount
  • Timing (including the start date), number and/or frequency of the entries
  • Receiver’s name or identity
  • Account to be debited
  • Date of the receiver’s authorization Language that instructs the receiver how to revoke the authorization directly with the originator (including the time and manner in which the receiver’s communication with the originator must occur)
    • For a single entry scheduled in advance, the right of the receiver to revoke the authorization must afford the originator a reasonable opportunity to act on the revocation prior to initiating the entry.

Impact to Participants

ODFIs and Originators

ODFIs and originators should review authorizations to ensure they meet the standards of “readily identifiable” and “clear and readily understandable terms”. These participants should also review and revise consumer debit authorization language to ensure that it includes the minimum standards.

RDFIs

RDFIs should have no impacts to their receipt and posting of entries.

Questions?

For more information, you can also visit Nacha's website.

Staying in compliance can be challenging, if you have any questions or need assistance preparing for these new Nacha Rules, email me or a member of our Financial Institutions Team so we can help. 

About the Author | Janice Weisz, AAP

Janice is a consultant in the Financial Institution Advisory Group at Saltmarsh, Cleaveland & Gund. Janice has been working with financial institutions since 2001 with an emphasis on operations, compliance, audit and internal controls. Janice currently is an Accredited ACH Professional (AAP) and conducts risk-based Nacha compliance audits and provides ACH-consulting services to the firm’s financial institution industry clients.


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